Techs come back; Dow idles - 2-8-99

KevinN. Marder

Quiet trade Techs come back; Dow idles

"We believe that the near-term outlook is becoming worrisome," Ralph Acampora, director of technical research at Prudential Securities, said in a research note. "A 5 percent-to-10 percent correction at this point would be normal, but this could turn ugly, depending on the 30-year Treasury bond yield."

Acampora's comments helped fuel a morning round of markdowns in U.S. share prices. But others were thinking the same thoughts.

"Most bull markets don't end by chance," said Frank D. Gretz, market analyst at Shields & Co. "Usually it's the Federal Reserve that kills bull markets, but the real point is that it's higher interest rates. And rates could be going higher."

Acampora believes the long bond, last trading at a yield of 5.35 percent, has technical support at 5.4 percent. "If this were breached, we could see the yield move up to 5.7 percent or even as high as 6 percent," he said.

In addition to the ramp-up in bond yields, the market watcher doesn't like the faulty breadth of the market's advance, the high bullish sentiment, the large number of stock splits, and the recent breakdown in the Dow Jones Utility Average
DJU, -0.80%
. See full story.

Beneath the surface of the popular averages, the technology sector swept back from two days of stinging losses, aided by positive analyst comments on the semiconductor equipment group. But some observers are skeptical that Monday's move will prove long-lasting.

"The sector became very extended in price and needed a pullback," Kaltbaum added. "When you combine that with the action in bonds and utility shares, the result is a tougher market in the near-term."

Chip shares had been scarred Thursday and Friday amid fears of a price war. In a research note to clients on Monday, Merrill Lynch semiconductor analyst Tom Kurlak said the rate of decline in chip industry sales has eased substantially. "...The worst is past, in our opinion, and we continue to forecast 1999 industry revenue growth at 9.6 percent," he said.

In other chip industry doings, Morgan Stanley Dean Witter hiked its ratings on semiconductor equipment suppliers Applied Materials (AMAT)
AMAT, -1.58%
and KLA-Tencor (KLAC)
KLAC, -3.85%
to "strong buy" from "neutral." In particular, Morgan cited an expected pickup in orders from Taiwan as the reason for its upgrade. Shares of Applied advanced 6 3/4 to 67 7/16 and KLA stock rose 4 3/16 to 58 1/16. As well, Merrill Lynch improved its opinion of Applied and KLA to "near-term buy" from "near-term accumulate." Merrill also fattened its rating of a few other stocks in the group. See full story.

Economically-cyclical issues
$cyc, last week's beneficiary of a rush out of technology names, couldn't pad their gains Monday. A recent run of strong economic reports, including those on fourth-quarter gross domestic product, January employment, and January manufacturing activity, had helped make the stocks popular.

One money manager isn't convinced of the sustainability of cyclical stocks' gains.

"Looking into the second half of the year, our scenario suggests that the economy will slow considerably as a consequence of stock market losses on the consuming public," said A.C. Moore, chief investment strategist at Dunvegan Associates.

"Thus, we would not make a wholesale foray into economically sensitive issues and would, instead, concentrate on consumer staple issues, which offer current value for longer term performance," Moore said.

Internet-related names soured for the fifth time in six days. Network Solutions (NSOL)
nsol
subtracted 23 5/8 to 174 1/8 on worry that the government will break up its exclusive lock on the business of registering Internet domain names.

In the Treasurys rose for the first time in a week, encouraged by a stronger dollar, fumbling blue-chip shares, and oversold conditions. The 30-year Treasury rose 1/32, to yield
TYX, -0.03%
5.348 percent.

In special situations, Executive Risk (ER)
ER, -2.27%
soared 21 1/8, or 48 percent, to 65 1/8 after agreeing to be acquired by fellow insurer Chubb (CB)
CB, -0.48%
for $850 million in stock, or about $71 a share. Chubb stock lost 2 5/8 to 55 7/16. See full story.

Intel (INTC)
INTC, -0.66%
put on 4 7/16 to 132 after it sliced prices by up to 24 percent on its Celeron line of microprocessors. The move is an attempt to grab some of the share of the low-end chip market that Intel has lost to Advanced Micro Devices. See full story.

AMR (AMR)
AMR, -3.26%
fell 2 15/16 to 57. The parent of American Airlines canceled 240 flights Sunday due to a shortage of workers, after discussions between AMR and the pilots' union fell apart Friday.

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